US Fed on hold but investors await signals on inflation fears

(FILES) This this file photo taken on May 02, 2018 shows the US Federal Reserve in Washington, DC. – Wage gains at long last have made an appearance in the US economy after a baffling absence amid robust job growth but the Federal Reserve is expected to hold its fire next week. Central bankers certainly will take notice of the recent data, with especial focus on everything contributing to inflation, but have made it clear they are committed to a gradual pace of increases in the benchmark lending rate, meaning the fourth hike of the year will not come until December. (Photo by Brendan Smialowski / AFP)

by Heather SCOTTAgence France Presse

WASHINGTON, United States (AFP) — No US economists believe the Federal Reserve will raise the all-important benchmark interest rate on Thursday but they are watching closely for any signals about how concerned the central bankers are about rising prices.

With the economy growing strongly and wages at long last starting to increase after years of robust job creation, central bank officials are wary the economy could overheat.

Investors will be looking for any sign about how aggressive the Fed will need to be. But they are unlikely to find it in the statement due out at 1900 GMT, partly because the Fed officials don’t yet know.

“The Fed today will do nothing to rates and won’t materially change the language of the post-meeting statement,” economist Ian Shepherdson of Pantheon Macroeconomics, said in a research note.

“The economic picture hasn’t changed meaningfully since the September meeting, despite the gyrations in the stock market.”

The Fed has raised the key interest rate — that influences everything from credit cards to mortgages to car loans — eight times since December 2015, including three times this year.

Most economists expect the next move to come in December, the final meeting of the year for the policy-setting Federal Open Market Committee (FOMC), with three more increases next year.

Going into the 10th year of recovery from the 2008 financial crisis, robust growth has pushed unemployment to historic lows, while inflation has so far remained right at the two percent target.

But while the absence of pay increases baffled economists and central bankers in recent years, Americans are finally seeing wages start to gain faster than the inflation rate.

Fed communications and policymakers have said repeatedly they expect to continue the gradual pace of reducing the stimulus in the economy, which will allow growth to continue while keeping inflation low.

How long that gradual pace can continue is unclear and likely requires more data on whether the wage increases are poised to feed into inflation.

But that fine tuning is difficult and as many economists have pointed out, virtually every Fed tightening cycle has ended in an economic downturn.

And the situation is complicated by the impact of President Donald Trump’s confrontational tariff policies that have raised costs and increased uncertainty for many companies nationwide.

GDP expanded at a 3.5 percent clip in the third quarter, partly boosted by massive corporate tax cuts, but economists project the US economy will slow in 2019.

The Fed meeting is happening as the dust settles from Tuesday’s midterm elections, which left Democrats in position to curtail Trump’s ambitions for economic policy.